Monthly Report April 2017

Governor’s $100 million Tax Credit Reduction Proposal

Senate Appropriations Staff

Greg Jordan, Director

John Guyer, Assistant Director

Kristi Houtz, Committee Secretary

Faith Bender (Environment/Labor)

Tom Diehl (Human Services)

Tom Horan (Revenue/DCED)

Russ Miller (Education/Agriculture)

Bill Witmer (Criminal Justice/Capital)

Senator Browne’s District Office

702 W. Hamilton Street, Suite 101

Allentown, PA 18101

Phone: 610-821-8468

Fax: 610-821-6798

www.senatorbrowne.com

Senate Appropriations Committee

281 Main Capitol Building

Harrisburg, PA 17120

Phone: 717-787-1349

Fax: 717-772-3458

http://appropriations.pasenategop.com/

Where We Are In The Annual Budget Process

After concluding on March 9th three weeks of hearings on Governor Wolf’s FY 2017-18 budget proposal, the Appropriations Committee is now conducting in-depth reviews of the budget proposal. These reviews are designed to validate assumptions that were used in the development of the budget and to prepare for the Governor’s Spring Budget Update, which is usually provided in May.

Inside This Issue

House’s Budget Proposal ....................... 2

Unemployment Numbers Update ........... 2

Governor’s Complement Cap ................. 3

March Revenue Numbers ........................ 4

Detailed General Fund Revenues ............ 5

As part of his Fiscal Year 2017-18 state budget recommendation, Governor Wolf proposed a $100 million reduction in the amount available for tax credits by converting the current array of tax credit incentives into a block grant. The Administration has indicated it would give priority to those tax credits with proven results and would limit those it determines to be less effective. Aside from that limited information, the Administration has provided very little detail to show exactly how the block grant proposal would work, what parameters will be used to make decisions regarding which credits will be affected and how much funding specific tax credit programs could lose.

Given the lack of specificity on the proposal, the General Assembly will need to carefully assess the Governor's proposal before determining whether it will become part of the final budget agreement.

$125.0$65.0

$55.0$50.0

$18.0$15.0

$10.1$10.0$10.0

$5.0$5.0$5.0$4.0$4.0$3.0$3.0$1.5$1.0$1.0

$0.0 $50.0 $100.0 $150.0

Educational Improvement

Film

Research & Development

Educational Opportunity Scholarship

Neighborhood Assistance Program

Keystone Innovation Zones

Job Creation

Resource Enhancement and Protection

Coal Refuse Energy and Reclamation

Brewers'

Mobile Telecommunications Broadband…

Data Center Equipment Incentive

Concert Rehearsal and Tour

Manufacturing and Investment

Community-Based Services

Historic Preservation Incentive

Waterfront Development

Video Game Production

Rural Jobs and Investment

Programs Included in Proposed Tax Credit Block Grant(Millions)

Current Tax Credit Funding Amount

2

4.6%

4.9%

5.3%

5.5%5.6% 5.6%

5.7%

5.7%

5.8%

5.7%

5.4%

5.2%

5.0%

4.9%

5.0%

5.0%

4.7%

4.9% 4.9% 4.9% 4.9%4.9%

4.6%

4.7%4.8%

4.7%

4.5%

5.0%

5.5%

6.0%

Pennsylvania National

Unemployment Numbers: Pennsylvania versus National

House of Representatives Releases Its FY 2017-18 Budget On April 4th, the House of Representatives passed its Fiscal Year 2017-18 state budget. The House’s budget cuts more than $815 million from the Governor’s proposed budget through 6.5% reductions to agency operating budgets and significant reductions and eliminations of discretionary programs. The House’s budget does accept the proposed mergers across criminal justice agencies as well as in health and human service agencies in the Governor’s proposed budget, but does not appear to accept the Governor’s proposal to lease the Farm Show building or to bond finance select grant programs. The House’s budget does not rely on any tax increases. No other details on the House’s revenue package were available at the time of the printing of this month’s newsletter.

$31.8

$32.3

$31.5

$30.8

$31.2

$31.6

$32.0

$32.4

2016-17 Governor2017-18

House2017-18

Governor's and House Budget Proposals(in billions)

3

In early December, Governor Wolf restricted staffing levels to the number of employees Commonwealth agencies had as of December 2, 2016. As noted in Table 1 below, Commonwealth agencies had approximately 74,000 filled positions in early December. Under the revised complement cap, agencies are permitted to fill positions if their staffing levels drop below the December 2, 2016 level or if the Governor’s Office grants an exception to the complement cap.

As noted in Table 1, overall filled staffing levels are now nearly 600 positions below December 2, 2016 levels. This drop in filled levels has been driven by Governor Wolf’s decision to lay off 500 Labor and Industry employees supported by the Unemployment Compensation Administration Fund at the end of last year.

Through the end of December, General Fund agencies continued to fill positions above the December 2, 2016 level, but overall General Fund staffing levels are now below that level by about 150. Some agencies continue to have staffing levels above their complement cap as shown in Table 2.

The Administration indicated the December 2, 2016 staffing levels became the basis for developing the Governor’s FY 2017-18 budget proposal and that no vacant positions were funded in the Governor’s request. While our committee has not completed its in-depth review of the Governor’s proposal, early analysis has discovered funded vacant positions throughout agency budget materials. Based on the continuing poor revenue performance, we are not likely to be able to budget for positions above the Governor’s December 2, 2016 level.

Update on Governor’s Complement Cap

12/2/2016 12/30/2016 1/27/2017 2/24/2017 3/24/2017 Difference:

March 24 vs. December 2

General Fund 52,277 52,538 52,358 52,230 52,131 -146

Motor License Fund 11,465 11,497 11,481 11,482 11,496 31

State Lottery Fund 386 390 386 385 385 -1

UC Administration Fund 1,853 1,432 1,405 1,389 1,382 -471

Fish Fund 376 377 374 373 371 -5

Game Fund 660 661 656 640 638 -22

State Stores Fund 3,339 3,363 3,365 3,377 3,370 31

All Other Funds 3,669 3,678 3,684 3,688 3,668 -1

Total 74,025 73,936 73,709 73,564 73,441 -584

Table1: Staffing Levels by Source of Funds

Table 2: Select Agency Staffing Levels

Individual Agency View (Select Agencies)

Filled Positions Above / (Below)

December Complement Cap

12/2/2016 3/24/2017

Probation and Parole 23 1,252.00 1,275.00

State 7 456.00 463.00

Education 5 440.00 445.00

Revenue 1 1,460.00 1,461.00

DCED 0 285.00 285.00

Environmental Protection (6) 1,818.60 1,812.60

General Services (9) 755.00 746.00

Corrections (13) 15,431.20 15,418.20

Military and Veterans Affairs (18) 2,387.95 2,370.02

4

Revenues Come Up Short of Projections Again for Month of March

$4,651,100$4,421,513

$0

$800,000

$1,600,000

$2,400,000

$3,200,000

$4,000,000

$4,800,000

March

General Fund Revenue CollectionsFiscal Year 2016-17

Comparison of Official Estimate with Actual Revenue by Month

Estimate Actu al

$23,073,400 $22,394,066

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

Year-to-Date

General Fund Revenue CollectionsFiscal Year 2016-17

Comparison of Official Estimate with Actual Revenue Year-to-Date

Estimate Actual

General Fund Collections

Year-to-Date Revenue Comparison with Official Estimate

$0

-$73

-$219-$182

-$262

-$367-$417

-$450

-$679

-$800

-$600

-$400

-$200

$0

$200

Mil

lio

ns

FY 2016-17

Revenue Deficit through

March $679 Million

Senate Appropriations Committee, Patrick M. Browne, Chairman

Fiscal Year 2016-17

Performance of Major Tax Types

Above/Below the Monthly Estimate

-$225

-$175

-$125

-$75

-$25

$25

$75

Mil

lio

ns

Estimate

PIT

SUT

Corp

Senate Appropriations Committee, Patrick M. Browne, Chairman

General Fund revenue collections for the month ended March 2017 totaled $4.42 billion, which was $229.6 mil-lion, or 4.9%, below the monthly estimate. Fiscal year-to-date collections total $22.4 billion, which is $679.3 mil-lion, or 2.9%, below estimate for the year. March is typically the largest revenue collection month of the year.

**In Thousands March

2017 Actual March

2017 Estimated Over/under

Estimate Fiscal Year-to-

Date Actual Fiscal Year-to-

Date Estimated Over/Under

Estimate

Corporation Taxes $2,243,397 $2,422,300 $178.9 million or 7.4% $3,696,286 $4,046,300 $350.0 million or 8.7%

Sales and Use $760,619 $765,800 $5.2 million or 0.7% $7,356,801 $7,488,500 $131.7 million or 1.8%

Personal Income Tax (PIT) $1,162,078 $1,177,200 $15.1 million or 1.3% $8,684,833 $8,828,100 $143.3 million or 1.6%

Cigarette Tax $108,572 $104,700 $3.9 million or 3.7% $923,472 $960,900 $37.4 million or 3.9%

Other Tobacco Products $8,644 $6,200 $2.4 million or 39.4% $53,215 $40,700 $12.5 million or 30.7%

Liquor Tax $29,747 $30,500 $753 thousand or 2.5% $273,992 $280,800 $6.8 million or 2.4%

Realty Transfer Tax (RTT) $33,436 $41,200 $7.8 million or 18.8% $343,182 $401,300 $58.1 million or 14.5%

Inheritance & Estate Tax $92,878 $84,400 $8.5 million or 10.0% $691,367 $706,000 $14.6 million or 2.1%

Non-Tax Revenues $45,840 $92,000 $46.2 million or 50.2% $338,595 $311,300 $27.3 million or 8.8%

General and Motor License Fund Revenue Detail

5

Fiscal Year 2016-17

Senate Appropriations Committee Monthly Revenue Report ($ thousands)

REVENUE SOURCES YTD

FY 2015-16 March 2017

Actual March 2017 Estimated

Surplus/ (Deficit)

YTD Actual

YTD Estimated

Surplus/ (Deficit)

TOTAL - GENERAL FUND 22,240,204 4,421,513 4,651,100 (229,587) 22,394,066 23,073,400 (679,334)

TOTAL - NON-TAX REVENUE 339,684 45,840 92,000 (46,160) 338,595 311,300 27,295

TOTAL - TAX REVENUE 21,900,520 4,375,673 4,559,100 (183,427) 22,055,472 22,762,100 (706,628)

TOTAL - Corporation Taxes 4,014,043 2,243,397 2,422,300 (178,903) 3,696,286 4,046,300 (350,014)

Accelerated Deposits 1,922 1,219 0 1,219 2,944 0 2,944

Corp. Net Income 1,867,157 457,475 484,300 (26,825) 1,738,153 1,974,900 (236,747)

Cap. Stock & Franchise 111,974 (5,190) (7,300) 2,110 29,763 9,600 20,163

Gross Receipts 1,286,980 1,159,104 1,231,400 (72,296) 1,206,423 1,269,300 (62,877)

PURTA 2,779 563 0 563 2,907 2,800 107

Insurance Premiums 415,339 342,454 385,200 (42,746) 405,404 432,900 (27,496)

Financial Institutions 324,798 287,772 328,700 (40,928) 310,692 356,800 (46,108)

Other Selective Bus. Taxes 3,096 $0 $0 $0 $0 $0 $0

TOTAL - Consumption Taxes 8,194,651 909,144 909,000 144 8,625,505 8,788,800 (163,295)

Sales and Use 7,243,486 760,619 765,800 (5,181) 7,356,801 7,488,500 (131,699)

General (net of transfers) 6,254,719 639,008 645,600 (6,592) 6,351,506 6,458,400 (106,894)

Motor Vehicle Sales 988,767 121,611 120,200 1,411 1,005,295 1,030,100 (24,805)

Cigarette Tax 668,915 108,572 104,700 3,872 923,472 960,900 (37,428)

Other Tobacco Products 0 8,644 6,200 2,444 53,215 40,700 12,515

Malt Beverage 18,495 1,562 1,800 (238) 18,025 17,900 125

Liquor 263,755 29,747 30,500 (753) 273,992 280,800 (6,808)

TOTAL - Other Taxes 9,691,826 1,223,132 1,227,800 (4,668) 9,733,680 9,927,000 (193,320)

Personal Income 8,595,117 1,162,078 1,177,200 (15,122) 8,684,833 8,828,100 (143,267)

Withholding 7,118,067 1,004,881 1,018,800 (13,919) 7,258,149 7,352,200 (94,051)

Non-Withholding 1,477,050 157,197 158,400 (1,203) 1,426,685 1,475,900 (49,215)

Realty Transfer 356,462 33,436 41,200 (7,764) 343,182 401,300 (58,118)

Inheritance & Estate 702,372 92,878 84,400 8,478 691,367 706,000 (14,633)

Minor & Repealed (36,928) (77,450) (87,000) 9,550 (75,201) (98,800) 23,599

Table Games 74,804 12,190 12,000 190 89,499 90,400 (901)

TOTAL - MOTOR LICENSE FUND 1,938,090 236,571 238,810 (2,239) 1,957,023 1,977,330 (20,307)

TOTAL - Liquid Fuels Taxes 1,229,836 114,162 126,500 (12,338) 1,261,329 1,270,900 (9,571)

Liquid Fuels (852) 1 0 1 59 0 59

Fuels 38 0 0 0 0 0 0

Motor Carriers/IFTA 72,063 2,564 5,000 (2,436) 71,753 74,900 (3,147)

Alternative Fuels 7,055 1,031 900 131 7,897 8,100 (203)

Oil Company Franchise 1,151,532 110,567 120,600 (10,033) 1,181,620 1,187,900 (6,280)

TOTAL - Licenses, Fees & Other 708,253 122,409 112,310 10,099 695,694 706,430 (10,736)

Licenses and Fees 676,103 114,343 105,200 9,143 677,010 684,900 (7,890)

Other Motor Receipts 32,150 8,066 7,110 956 18,684 21,530 (2,846)